Local leadership predicts that the Global Center will cover its costs in 2016, generating 80 percent of its revenues from rent and the rest through sponsorship deals.
CLEVELAND, Ohio -- Call it the carrot. Or, if you will, the whipped cream on the sundae.
From its beginnings as a medical merchandise mart, the Global Center for Health Innovation was the sweetener -- an incentive for Cuyahoga County residents to support a tax hike to build a new convention center.
Behind the sales pitch, though, the economic model was less clear.
Was the Global Center a medical showplace where the health care industry would shop for new products? Was it an educational hub? An added lure for medical meetings and events? Were tenants paying rent, or being paid to move in?
Was the building, like the convention center attached to it, a perpetual money-loser that the county nonetheless needed to build for economic development, in the form of tourism, events, hotel bookings and restaurant checks?
It's difficult to gauge success for the Global Center, a one-of-a-kind facility and clear experiment. But on the eve of a ribbon-cutting, four months before the public opening, the building's rentable space is 80 percent spoken for.
Work on tenant showrooms will continue through 2014, and some reduced-rent deals won't burn off for several years. Still, the local leadership predicts that the Global Center will cover its costs in 2016. And it might tiptoe into the black -- generating cash that, in some small way, will offset what the public spends each year to maintain the convention hall.
"Think of it as a commitment to break even and not require any public subsidy for that thing called the Global Center," said Jim Bennett, the Cleveland business consultant who took the helm at the Global Center and convention center in April 2012. "As you go into the future and the rents rise faster than expenses ... then that contribution to the convention center grows. In the interim, the county needs to fill the gap."
That wasn't necessarily the model 18 months ago, when Chicago-based developer Merchandise Mart Properties, Inc., listened to worried local leaders and hired Bennett to oversee the project. He found an unmoored building, a sidekick to the convention center, with a roster of tenants expecting rent-free occupancy.
Now, those rent-free deals largely are gone. Bennett says only two tenants -- and he won't identify them -- still have free lodging. Most three-year leases have been replaced with five-year terms, giving the center a bit more stability and tenants more time to recoup their considerable investments to outfit their spaces.
"The old free deals came against a typical building strategy," said Dave Shute, a senior strategic advisor at the facility. "There was no strategy. It was just a building with a topic."
Now the Global Center's mission might be four-fold.
- First, attract industry traffic from outside Northeast Ohio, driving business to hospitals and health care companies while boosting Cleveland's medical profile.
- Second, teach professionals and curious visitors about health care innovation and technology.
- Third, bring more health and medical events to the city than the convention center might attract on its own.
- And, fourth, sustain itself by charging rent and picking up sponsorships.
Individual tenants were reluctant to talk about their leases at the Global Center. Several of them didn't return calls, and a few others declined to comment.
Bennett wouldn't provide specific dollar figures on revenues or expenses -- data he isn't required to release while MMPI, a division of Vornado Realty Trust of New York, is still developer and manager of the facility. More information is likely to trickle out after MMPI hands off control of the entire complex to the company's likely successor, a major convention center operator called SMG.
What Bennett will say is that 80 percent of the Global Center's revenues will come from rent in a stable year, the first such year being 2016.
The rest will come from sponsorships, including product placement in the center's State of the Art Home, deals with four local hospitals and agreements with companies including Olmsted Township blender-maker Vita-Mix Corp., which is putting its name on a theater in the building's welcome center.
"We're just putting a full court press on this," said Bennett, who expects to stay on, with his team, after the management changes. "We've really run this thing as a very professionally organized and executed mission, in the way you'd find a very professional company being run."
The Global Center is asking new tenants for $26 per square foot per year for space -- comparable to rates at some of downtown's best buildings and the future Cuyahoga County headquarters, but less than developers are charging for new high-rise space at the Ernst & Young Tower at the Flats East Bank project.
Some existing tenants are paying at that price. Others, including companies represented on the facility's advisory board, are getting discounts. And Bennett's team clearly cut a deal to win an anchor tenant, the Chicago-based Healthcare Information and Management Systems Society. The trade group, which represents 52,000 members, hosts huge conferences and commands attention from hospitals and medical manufacturers.
HIMSS leased the Global Center's entire fourth floor, no small thing in a building where tenants are spending roughly $200 per square foot, only 18 percent of that covered by the landlord, to finish their spaces. Based on those figures, HIMSS might be investing $4.1 million, with another $2.1 million coming for an expansion between now and 2016.
To offset those expenses and grab a highly visible tenant, most landlords would be willing to offer reduced-cost rent.
A HIMSS executive declined to comment for this story.
Bennett wouldn't discuss any individual tenant deals. "HIMSS is the cornerstone of this building," he said, "and we needed them to make it work."
Starting in 2016, Bennett and his team also believe they can bring at least 25,000 annual visitors to the facility from outside Northeast Ohio. And they expect the Global Center to play a key role in negotiating deals for at least 10 major events each year, with more than 500 participants at each event.
Those are new goals for a project that started its life with few performance requirements.
"I don't think you can look at the med mart as a traditional real estate project," Baiju Shah, the chief executive officer of biomedical accelerator BioMotiv, said, pointing to the need to attract and develop events and bring in visitors on top of leasing space.
"There's a much higher bar than real estate management," added Shah, a member of the Global Center's industry advisory board. "That ... is what I'm most concerned about in the execution of the project -- that everyone gets excited about the opening and then there's no vigilance after."
Aram Nerpouni, president and chief executive officer of nonprofit business accelerator BioEnterprise, echoed those thoughts.
"I think we're on a very good trajectory," he said, "but we can't get comfortable with the milestones that we're hitting now. It's great that the building is opening. It's great that there's a lot of early tenant interest. What we need to do as a community is make sure that we really leverage the facility. We need to make sure that the community, from the health systems and the broader public as well as the biomedical industry, has reason to be in that building on a regular basis.
"How do we make sure that that thing is really rocking and rolling?"